What Is Medigap?
Medigap, also known as Medicare Supplement Insurance, is a type of health insurance sold by private companies that helps cover the "gaps" in Original Medicare (Part A and Part B). While Original Medicare covers many healthcare services for individuals aged 65 or older and certain younger people with disabilities or specific medical conditions, it does not pay for all costs. Medigap policies are designed to cover some of the out-of-pocket expenses that Original Medicare does not, such as deductible amounts, coinsurance, and copayments47, 48. When an individual has both Original Medicare and a Medigap policy, Medicare first pays its share of the approved healthcare costs, and then the Medigap policy pays its share according to the specific plan chosen45, 46. Medigap plans are a critical component of healthcare financial planning for many beneficiaries.
History and Origin
The concept of Medicare Supplement (Medigap) plans emerged shortly after the enactment of Medicare itself in 1966, designed to address the coverage gaps in the federal health insurance program43, 44. Early Medigap policies were largely unregulated, leading to a confusing array of plans with varying benefits and consumer protections. To bring order and protect consumers, the federal government began to introduce oversight. A significant milestone occurred with the Omnibus Budget Reconciliation Act of 1990 (OBRA-90), which mandated the standardization of Medigap policies41, 42. This legislation directed the National Association of Insurance Commissioners (NAIC) to develop a set of standardized benefit packages, identified by letters (A through J, initially), that private insurers could offer39, 40. This standardization, implemented in 1992, made it easier for consumers to compare plans from different companies, as a Plan A from one insurer offered the same basic benefits as a Plan A from another, regardless of the issuing company37, 38. Subsequent legislation, such as the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) and the Medicare Improvement for Patients and Providers Act of 2008 (MIPPA), continued to refine Medigap offerings and consumer protections35, 36.
Key Takeaways
- Medigap policies are sold by private insurance companies to help cover out-of-pocket costs not paid by Original Medicare (Parts A and B).
- These policies are standardized by federal law, meaning plans with the same letter (e.g., Plan G) offer identical benefits regardless of the insurance company or location (with exceptions in Massachusetts, Minnesota, and Wisconsin)33, 34.
- A Medigap policy is typically guaranteed renewable, meaning the insurer cannot cancel your policy as long as you pay your premiums32.
- Medigap plans do not cover prescription drugs; for this, a separate Medicare Part D plan is required30, 31.
- It is generally not possible to have both a Medigap policy and a Medicare Advantage Plan simultaneously27, 28, 29.
Interpreting Medigap
Interpreting Medigap involves understanding which out-of-pocket costs your specific plan will cover beyond Original Medicare. Since plans are standardized by letter, comparing them focuses primarily on the monthly premium and the insurer's reputation, rather than varying benefits25, 26. For instance, a Medigap policy may cover the 20% coinsurance that Medicare Part B does not, or the copayment for hospital stays beyond a certain number of days. Individuals often choose a Medigap plan based on their anticipated healthcare usage and financial comfort with potential out-of-pocket expenses. The more comprehensive plans generally have higher premiums but offer greater predictability in healthcare costs.
Hypothetical Example
Consider Maria, who is 70 years old and has Original Medicare, consisting of Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance). She decides to purchase Medigap Plan G.
One year, Maria needs to undergo a minor surgical procedure as an outpatient. The total Medicare-approved cost for the procedure is $5,000.
- Original Medicare Part B pays 80% of the Medicare-approved amount after Maria meets her Part B deductible. Let's assume Maria has already met her annual Part B deductible. So, Medicare Part B pays 80% of $5,000, which is $4,000.
- The remaining 20% is Maria's coinsurance, totaling $1,000.
- Since Maria has Medigap Plan G, which covers the Part B coinsurance, her Medigap policy pays this $1,000 balance.
- Maria is responsible for her monthly Medigap premium and any Part B excess charges (if applicable and not covered by her specific plan, though Plan G covers them). In this scenario, because Plan G covers the Part B coinsurance and excess charges, Maria's out-of-pocket cost for this specific procedure, beyond her premiums, would be minimal.
Practical Applications
Medigap policies are primarily used by individuals who have Original Medicare and seek to limit their unpredictable out-of-pocket healthcare costs. They are particularly beneficial for those who prefer the flexibility to choose any doctor or hospital that accepts Medicare, without concerns about a provider network24.
Key practical applications include:
- Cost Predictability: By covering deductibles, coinsurance, and copayments, Medigap helps establish more predictable healthcare expenses. This can be crucial for individuals managing fixed incomes in retirement planning.
- Travel Coverage: Some Medigap plans offer coverage for emergency medical care when traveling outside the U.S., which Original Medicare generally does not cover23.
- Ease of Use: With Medigap, claims are often handled seamlessly between Medicare and the Medigap insurer, simplifying the billing process for beneficiaries22.
- Guaranteed Issue Rights: In certain situations, individuals have "guaranteed issue rights," meaning insurance companies must sell them a Medigap policy, typically during their initial open enrollment period, regardless of health status20, 21.
- Medicare Enrollment: Individuals typically sign up for Original Medicare Parts A and B through the Social Security Administration, after which they can apply for a Medigap policy18, 19. More information on applying for Medicare can be found on the official Social Security Administration website. Social Security Administration: Sign up for Medicare
Limitations and Criticisms
While Medigap offers significant benefits, it also has limitations. A major criticism is that Medigap policies do not cover prescription drugs, meaning beneficiaries must purchase a separate Medicare Part D plan for drug coverage17. Additionally, Medigap policies do not cover long-term care (like nursing home care), vision or dental care, hearing aids, eyeglasses, or private-duty nursing16.
Another limitation is related to underwriting. After the initial Medigap Open Enrollment Period (a six-month window that starts when an individual turns 65 and enrolls in Medicare Part B), insurers are generally not required to sell a Medigap policy or may charge more based on health status, except in specific "guaranteed issue" situations14, 15. This can make it difficult or costly for individuals to switch plans or purchase a policy later in life if they missed their initial enrollment period or if their health deteriorates.
Furthermore, Medigap policies involve monthly premiums that are paid in addition to the Medicare Part B premium, which can be a significant cost for some individuals. For instance, the elimination of "first-dollar coverage" plans (like Plans C and F for new Medicare beneficiaries as of January 1, 2020) means that new enrollees must cover their deductibles before Medigap coverage begins13.
Medigap vs. Medicare Advantage
Medigap and Medicare Advantage (Medicare Part C) are distinct approaches to supplementing Original Medicare, and an individual generally cannot have both simultaneously11, 12. The primary difference lies in how they deliver Medicare benefits and handle costs.
| Feature | Medigap (Medicare Supplement) | Medicare Advantage (Medicare Part C) |
|---|---|---|
| Relationship to Original Medicare | Supplements Original Medicare (Parts A & B). Medicare pays first, then Medigap. | Replaces Original Medicare. Benefits are delivered through a private plan. |
| Provider Choice | Generally allows access to any doctor/hospital that accepts Medicare. No provider network restrictions. | Often requires using doctors/hospitals within the plan's network to receive full benefits. |
| Prescription Drug Coverage | Does NOT include drug coverage; separate Medicare Part D plan needed. | Typically includes prescription drug coverage (Part D) bundled into the plan. |
| Extra Benefits | Does not typically offer extra benefits like dental, vision, or hearing. | Often includes additional benefits like dental, vision, hearing, and wellness programs. |
| Monthly Premiums | Requires a separate monthly premium in addition to Medicare Part B premium. | Many plans have low or $0 monthly premiums (in addition to Medicare Part B premium). |
| Out-of-Pocket Costs | Helps cover deductibles, coinsurance, and copayments, leading to more predictable costs. | May have lower monthly premiums but often involves copayments and coinsurance for services, with an annual out-of-pocket maximum10. |
The choice between Medigap and Medicare Advantage often depends on an individual's preference for flexibility, cost predictability, and desire for integrated benefits8, 9.
FAQs
Q: Who is eligible to buy a Medigap policy?
A: Generally, you must have Original Medicare, meaning both Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance), to buy a Medigap policy6, 7. Your best time to buy is usually during your 6-month Medigap Open Enrollment Period, which begins the month you turn 65 and are enrolled in Part B4, 5.
Q: Can I keep my Medigap policy if I move to a different state?
A: Medigap policies are typically issued by private insurance companies licensed in your specific state. If you move to another state, you may need to purchase a new Medigap policy in your new state of residence. Federal laws and state regulations protect your right to enroll in certain situations, providing "guaranteed issue" rights if you move3.
Q: Do Medigap policies cover prescription drugs?
A: No, Medigap policies do not cover prescription drugs2. To get coverage for prescription medications, you would need to enroll in a separate Medicare Part D plan1. This would be an additional monthly premium on top of your Medigap policy and Medicare Part B premiums.